Item 1.01. Entry into a Material Definitive Agreement.
Term Loan Agreement
On December 15, 2017, CVS
Health Corporation (CVS Health) entered into a Term Loan Agreement (the Term Loan Agreement) with the lenders party thereto and Barclays Bank PLC, as administrative agent. The Term Loan Agreement provides for total term loan
commitments in an aggregate principal amount of $5.0 billion and reduces the $49.0 bridge facility commitments previously described in the Current Report on Form
8-K
filed by CVS Health with the
Securities and Exchange Commission (the SEC) on December 5, 2017 (the December 5 Current Report) by such principal amount. The Term Loan Agreement was entered into in connection with the previously announced proposed
merger (the Merger) of a wholly-owned subsidiary of CVS Health with Aetna Inc., a Pennsylvania corporation (Aetna), pursuant to the Agreement and Plan of Merger, dated as of December 3, 2017 (the Merger
Agreement), among CVS Health, Aetna and Hudson Merger Sub Corp., a Pennsylvania corporation and a wholly-owned subsidiary of CVS Health, described in the December 5 Current Report.
The lenders party to the Term Loan Agreement will be obligated to make loans under the Term Loan Agreement upon the satisfaction or waiver of certain
conditions, including but not limited to: (i) the occurrence of the Effective Date (which requires the satisfaction or waiver of specified conditions precedent, including, without limitation, the delivery of certain certificates,
organizational documents and opinions), (ii) the consummation of the Merger concurrently or substantially concurrently with the making and the funding of the loans under the Term Loan Agreement in all material respects in accordance with the terms
of the Merger Agreement, (ii) the absence of a material adverse effect change with respect to Aetna since December 3, 2017, (iii) the truth and accuracy in all material respects of the Target Representations and the Specified
Representations (each as defined in the Term Loan Agreement), (iv) the absence of specified events of default, (v) the receipt of certain certificates and (vi) the receipt of certain financial statements. The Effective Date under the Term
Loan Agreement occurred on December 15, 2017.
The term loan facility under the Term Loan Agreement consists of a $3.0 billion three-year
tranche and a $2.0 billion five-year tranche. Borrowings under the Term Loan Agreement will be unsecured. The three-year tranche does not amortize. The five-year tranche amortizes in equal quarterly amounts equal to the percentage per annum as
follows: (i) 0% from after the Closing Date to, and including, the first anniversary of the date on which lenders are obligated to make loans under the Term Loan Agreement, (ii) 1.25% from after the first anniversary to, and including, the third
anniversary of the date on which lenders are obligated to make loans under the Term Loan Agreement and (iii) 2.5% from after the third anniversary to, and including, the fifth anniversary of the date on which lenders are obligated to make loans
under the Term Loan Agreement. Borrowings under the $3.0 billion three-year tranche will mature and be payable on the three-year anniversary of the date on which lenders are obligated to make loans under the Term Loan Agreement and borrowings
under the $2.0 billion five-year tranche will mature and be payable (to the extent not amortized) on the five-year anniversary of the date on which lenders are obligated to make loans under the Term Loan Agreement.
Borrowings under the Term Loan Agreement will bear interest at a rate per annum equal to, at the option of CVS Health, either the Eurodollar rate or the base
rate, plus, in each case, an applicable margin that will depend on the credit ratings by each of Standard & Poors Ratings Services (S&P) and Moodys Investors Service, Inc. (Moodys) of CVS
Healths senior unsecured debt
non-credit
enhanced long-term indebtedness for borrowed money, as set forth in the Term Loan Agreement. The Eurodollar rate will be an interest rate per annum equal to the
London Interbank Offered Rate for the applicable interest rate multiplied by the statutory reserve rate. The base rate will be, for any day, a fluctuating rate per annum equal to the highest of (i) the rate last quoted by The Wall Street
Journal as the prime rate or, if The Wall Street Journal ceases to quote such rate, the highest rate per annum published by the Federal Reserve Board as the bank prime loan rate or, if such rate is no longer quoted, any
similar release by the Federal Reserve Board, (ii) the Federal Funds effective rate plus
1
⁄
2
of 1.0% and (iii) the
one-month
reserve adjusted Eurodollar Rate plus 1.0%.
Each lender under the Term Loan Agreement is entitled to a
commitment fee, payable quarterly in arrears, at a rate that will depend on the credit ratings by each of S&P and Moodys of CVS Health, as set forth in the Term Loan Agreement, on the undrawn and available commitment of that lender (as
determined on a daily basis), accruing from and including February 1, 2018 to but excluding the date on which all commitments under the Term Loan Agreement are terminated.
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The Term Loan Agreement contains certain covenants, including limitations on liens; dispositions; mergers or
consolidations; acquisitions; restricted payments; limitation on upstream dividends by subsidiaries; and limitation on negative pledges. In addition, the Term Loan Agreement limits the ratio of CVS Healths consolidated indebtedness to total
capitalization debt to a maximum of 0.60 to 1.0; provided that (a) from the closing date under the Term Loan Agreement through and including the fiscal quarter ending September 30, 2019, CVS Health will not permit its ratio of consolidated
indebtedness to total capitalization at the end of any fiscal quarter to exceed 0.65:1.00 and (b) until the earlier of (i) the occurrence of the closing date under the Term Loan Agreement and (ii) the date that is 30 days following
the termination of the Merger Agreement in accordance with its terms, consolidated indebtedness and total capitalization shall each be calculated exclusive of any indebtedness not exceeding $49.0 billion issued or borrowed by CVS Health for the
purpose of financing the Merger (including all of the transaction costs, fees, commissions and expenses in connection therewith) and which is redeemable or prepayable if the Merger is not consummated. The Term Loan Agreement also includes a covenant
restricting the incurrence of debt by CVS Healths subsidiaries to up to 15% of net tangible assets. In determining compliance with such test, (i) any indebtedness of Aetna and its subsidiaries existing as of the closing date under the
Term Loan Agreement (other than any increase, refinancing or replacement thereof) (the Aetna Existing Indebtedness) shall be excluded from indebtedness, and (ii) indebtedness that may be incurred by all of CVS Healths
subsidiaries (excluding the Aetna Existing Indebtedness and other indebtedness under capital leases incurred in connection with a sale and leaseback transaction) may not exceed $900.0 million in the aggregate, in each case, until such date as
CVS Health shall be in compliance with such test without giving effect to the exclusion in clause (i) above.
The Term Loan Agreement contains
customary events of default, such as
non-payment
of obligations under the Term Loan Agreement, violation of affirmative or negative covenants, material inaccuracy of representations,
non-payment
of other material debt, bankruptcy or insolvency, ERISA and judgment defaults and change of control.
The
foregoing description of the Term Loan Agreement is summary in nature and is qualified in its entirety by reference to the Term Loan Agreement, a copy of which is filed hereto as Exhibit 10.1, and incorporated herein by reference.
Joinder to Bridge Facility Commitment Letter
On
December 15, 2017, CVS Health executed and delivered a joinder agreement (the Commitment Letter Joinder) to CVS Healths bridge facility commitment letter, dated December 3, 2017 (the Commitment Letter),
previously described in the December 5 Current Report, which amended the Commitment Letter to, among other things, add JPMorgan Chase Bank, N.A., Wells Fargo Bank, N.A., The Bank of New York Mellon, The Bank of Tokyo-Mitsubishi UFJ, Ltd.,
Mizuho Bank, Ltd., Royal Bank of Canada, SunTrust Bank, U.S. Bank National Association, Fifth Third Bank, KeyBank National Association, PNC Bank, National Association, Banco Santander, S.A., New York Branch, Sumitomo Mitsui Banking Corporation, Bank
of China, New York Branch, Industrial and Commercial Bank of China Limited, New York Branch, The Toronto-Dominion Bank, New York Branch and Guggenheim Life and Annuity Company as additional commitment parties and reallocate the commitments
thereunder.
The foregoing description of the Commitment Letter Joinder does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Commitment Letter Joinder, a copy of which is included as Exhibit 2.1 hereto, and incorporated herein by reference. The Commitment Letter Joinder should be read in conjunction with, and is qualified in its entirety by
reference to, the Commitment Letter itself. The material terms of the Commitment Letter are described in the December 5 Current Report and a copy of the Commitment Letter is included as Exhibit 2.2 to the December 5 Current Report.
The representations, warranties and covenants contained in the Term Loan Agreement and the Commitment Letter Joinder, including the Commitment Letter, were
made only for purposes of such agreements and as of the dates specified therein; were solely for the benefit of the parties thereto; and may be subject to standards of materiality applicable to the contracting parties that differ from those
applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of CVS Health and its subsidiaries. Moreover, information
concerning the subject matter of any representations, warranties and covenants may change after the dates of the Term Loan Agreement and Commitment Letter Joinder, including the Commitment Letter, which subsequent information may or may not be fully
reflected in public disclosures by CVS Health.
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Amendments to Existing Revolving Credit Agreements
On December 15, 2017, CVS Health and its existing group of lenders entered into a first amendment to each of CVS Healths existing revolving credit
facilities (collectively, the Existing Revolving Credit Agreements) consisting of (i) a $1.0 billion,
364-day
unsecured credit facility expiring on May 17, 2018 under the
364-Day
Credit Agreement, dated as of May 18, 2017 (the
364-Day
Credit Agreement), among CVS Health, the lenders party thereto and The Bank of New York
Mellon, as administrative agent (filed as Exhibit 10.1 to CVS Healths Quarterly Report on Form
10-Q
for the period ended June 30, 2017 filed with the SEC on August 8, 2017 (the Q2 2017
Quarterly Report)), (ii) a $1.0 billion, five-year unsecured
back-up
credit facility expiring on May 18, 2022 under the Five Year Credit Agreement, dated as of May 18, 2017 (the 2017
Five Year Credit Agreement), among CVS Health, the lenders party thereto and The Bank of New York Mellon, as administrative agent (filed as Exhibit 10.2 to the Q2 2017 Quarterly Report), (iii) a $1.25 billion, five-year unsecured
back-up
credit facility expiring on July 24, 2019 under the Second Amended and Restated Credit Agreement, dated as of July 24, 2014 (Second A&R Credit Agreement), among CVS Health, the
lenders party thereto and The Bank of New York Mellon, as administrative agent (filed as Exhibit 10.1 to CVS Healths Quarterly Report on Form
10-Q
for the period ended June 30, 2014 filed with the
SEC on August 5, 2014) and (iv) a $1.25 billion, five-year unsecured
back-up
credit facility expiring on July 1, 2020 under the Credit Agreement, dated as of July 1, 2015 (2015
Five Year Credit Agreement), by and among CVS Health, the lenders party thereto and The Bank of New York Mellon, as administrative agent (filed as Exhibit 10.2 to CVS Healths Quarterly Report on Form
10-Q
for the period ended June 30, 2015 filed with the SEC on August 4, 2015) in order to:
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(i)
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amend the covenant restricting the incurrence of debt by CVS Healths subsidiaries to up to 15% of net tangible assets (the Net Tangible Assets Test), by (a) excluding any indebtedness of Aetna and
its subsidiaries existing as of the closing date of the Merger (other than any increase, refinancing or replacement thereof) (the Aetna Existing Indebtedness), from indebtedness for purposes of determining compliance with the Net
Tangible Assets Test, and (b) restricting the indebtedness that may be incurred by all of CVS Healths subsidiaries (excluding the Aetna Existing Indebtedness and other indebtedness under capital leases incurred in connection with a sale
and leaseback transaction) to an amount not exceeding $900.0 million in the aggregate, in each case, until the date that CVS Health is in compliance with the Net Tangible Assets Test without giving effect to the exclusion set forth in clause
(a) above;
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(ii)
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expressly permit the consummation of the Merger under the acquisition covenant;
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(iii)
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amend the financial covenant by (a) increasing the consolidated indebtedness to total capitalization ratio from 0.60:1.00 to 0.65:1.00 from the closing date of the Merger through and including the fiscal quarter
ending September 30, 2019, and (b) excluding indebtedness in an aggregate principal amount not exceeding $49.0 billion incurred by CVS Health for the purpose of financing the Merger (including all of the transaction costs, fees,
commissions and expenses in connection therewith), and which is redeemable or prepayable if the Merger is not consummated from the calculation of consolidated indebtedness and total capitalization, until the earliest of the occurrence of the closing
date of the Merger, the date that is 30 days following the termination of the Merger Agreement in accordance with its terms and August 31, 2019; and
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(iv)
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increase the threshold amount in certain specified events of default to (a) prior to the later of (x) the termination or other expiration of the Commitment Letter in accordance with its terms and (y) the
termination or other expiration of the bridge facility referenced in the Commitment Letter if it is entered into, $250.0 million, and (b) at all other times $200.0 million.
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The foregoing description of each of the Amendment No. 1 to the
364-Day
Credit Agreement, Amendment No. 1 to
the 2017 Five Year Credit Agreement, Amendment No. 1 to the Second A&R Credit Agreement and Amendment No. 1 to the 2015 Five Year Credit Agreement is summary in nature and is qualified in its entirety by reference to each first
amendment, copies of which are filed hereto as Exhibit 10.2, Exhibit 10.3, Exhibit 10.4 and Exhibit 10.5, respectively, and incorporated herein by reference. Each first amendment should be read in conjunction with, and is qualified in its entirety
by reference to, the respective Existing Revolving Credit Agreement. Copies of the Existing Revolving Credit Agreements are included as exhibits to CVS Healths periodic filings with the SEC described above.
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